Vince Cable MP, Acting Leader, Liberal Democrats

ANDREW MARR: Your last full week as Party Leader so it's been an extraordinarily short but exhilarating ride for you.

A couple of things. I suppose first of all we should talk about what you're going to achieve in your final week as Liberal Democrat Leader when you're going to be focusing on defence - not something that we've heard an awful lot from the Liberal Democrats about.

VINCE CABLE: Well when I introduced that question, Prime Minister's Questions ... the Mr Bean one was actually a preface to a serious question about the lack of attention to our troops.

ANDREW MARR: That's ...

VINCE CABLE: That just got lost yes. But I was trying to follow up the point that the Chiefs of Staff have been making, that we make these massive military commitments - Iraq, Afghanistan, potentially now in Yugoslavia.

The troops themselves are often neglected. They have appalling housing, mental health conditions are neglected, there is an ..

ANDREW MARR: ... in the papers today.

VINCE CABLE: Yes. Exactly. There are many stories today and the troops in Afghanistan have not been paid for example because of a computer malfunction.

And what happens is that there is an unwritten covenant to protect British troops, to preserve their quality of life. But this is not being honoured. And we want to draw attention to this and to ..

ANDREW MARR: You'd like it to be a written covenant?

VINCE CABLE: Yes, to be a written covenant, supervised by Parliament. And whenever we have to make a decision to go to war one of the key conditions would have to be that the troops are properly supported.

ANDREW MARR: Would you spend more money on the troops though because it does come down to money?

VINCE CABLE: The over all defence budget doesn't need to be increased. We need to change the priorities. At the moment a lot of money is still being spent keeping the British forces in Iraq.

We would argue for a much faster withdrawal. But, but there are, tough choices have to be made. And we've argued for example that the Euro Fighter contract, an enormous military contract which dates back to the Cold War and is no longer really relevant, should now be cancelled in its last stage.

And you'll save a lot of money that could then be ploughed back into proper housing for the troops because it's bad housing - there's a whole story that, about privatisation going back to the nineties and the Conservative government. But very poor accommodation and it needs more funding put into it.

ANDREW MARR: But you don't think, I mean given that public spending on defence has gone down quite briskly as a proportion of national wealth, it needs to go up again if Britain is going to carry on playing the same kind of role in the world?

VINCE CABLE: Well the easy thing to say is let's spend more money on everything. I don't agree with that.

ANDREW MARR: But you're not saying that?

VINCE CABLE: No I'm a, I'm a shadowing, serious Shadow Chancellor to the government and we have to be responsible. And therefore if we say more money has to be spent say on troops housing, on mental health, it's got to come from somewhere else. And there are wasteful defence projects that could be cut.

ANDREW MARR: Now you are by training and trade an economist. You worked with Shell for a long time. And I'd be therefore very interested in your take on the economy at the moment. Because everybody seems to think we're on the edge of something quite nasty.

VINCE CABLE: I think we are. And the government's argument is that this is all some unfortunate accident. It's blown in from the United States. I don't believe that. I mean I've been arguing for two or three years now in the House of Commons and Gordon Brown's always refuted this argument, that the British economy is very seriously unstable.

Because what's been happening is households have been building up enormous personal debt, it's unprecedented historically and by comparison by other rich countries this debt is secured against house prices which are massively inflated. And at some point all of this was going to come unstuck. And it is now beginning to come unstuck.

ANDREW MARR: Now if house prices crash in the way that some people are talking about what's the knock on effect on banking? I mean you, you're very involved in the Northern Rock situation. Are we going to see more of those?

VINCE CABLE: I fear the banks potentially have a major problem, particularly those that are exposed to, to the housing market.

Of course the problem with Northern Rock is that we've only faced the, the first wave of the problem. And the government's already put in thirty billion pound of taxpayers' money to preserve this bank. And yet there could be more damage to come if the housing market goes down.

The worry about the housing market is that if there is a serious deterioration and if people aren't able to sustain their mortgage payments we're then faced with, as we were in the nineteen seventies, with a lot of people being repossessed, put out on the streets. And I argue that instead of just waiting for this to happen we actually should plan ahead.

And the government should be getting the banks together and preparing some kind of safety net arrangement so that people are not repossessed, they stay in their home, they share their equity with the bank.

ANDREW MARR: Do you think therefore that the whole regime for regulating banks that was set up by Gordon Brown and the rest ten years ago is wrong in the sense that you need to get, go back to the old system where the Governor of the Bank of England privately called in the senior guys from the big banks and sort of did these kind of deals behind closed doors? We need to go back to that system?

VINCE CABLE: No you can't do that. I mean the world is much more transparent. And actually this issue about the so called tripartite structure is irrelevant. But there is a, there is a major criticism one can make of the way the banks are regulated.

There was a very good report produced seven years ago by a man called Cruickshank that basically said the banks were making enormous profits, way in excess of what they should be doing, given that they have various privileges in regulation like being bailed out to so called lender of last resort.

Gordon Brown found that a very embarrassing report. The banks shouted very loudly and they swept it all under the carpet. But many of the problems that were identified then and were not acted upon are now coming to light.

I worry particularly about the Northern Rock affair because the amount of money that's being sunk in is absolutely staggering and we're, you know we're talking about the equivalent of the annual defence budget. And there's no end to it.

ANDREW MARR: And you want this bank to be nationalised. When you said that in the House of Commons Gordon Brown responded no, no, no. What we have to do is see if there is someone out there to buy the bank. Virgin is, Richard Branson is clearly at the front of the queue there. That was a fair point wasn't it?

VINCE CABLE: It's not going to work. I mean how, now that the money markets have seized up there's very little prospect that these private buyers are going to be able to raise the money to keep the bank going and also repay the taxpayer which is the crucial consideration.

I'm not arguing for nationalisation for ideological reasons. I don't think government should be running banks.

They would have to hire professional managers for it. But they've got to stabilise the situation so that the vast amount of money that's being poured in at present is, is, is, is kept on, you know we get our money back.

And the only way to retain the bank in a stable position is to take it over and then eventually sell it off in much more settled conditions.

ANDREW MARR: Now your big mistake was not standing for the leadership of your Party wasn't it? Everyone saying oh that Vince Cable, that's the guy we want.

VINCE CABLE: No. I mean I, the nominations closed a few weeks ago.

ANDREW MARR: I know.

VINCE CABLE: I'm happy with my present position. Whichever of the two is chosen will be a very good leader and I will have a, hopefully a senior role in the administration and the Party and I'm very happy with that. No problem with that.

ANDREW MARR: A sort of strange and unexpected episode in your life. What's it been like suddenly having you know a pretty substantial party in the House of Commons to lead for a few weeks?

VINCE CABLE: Well if it's been successful I think it's because I've had a clear view of what I'm trying to do. And the clear view is that our role as a Party is, is challenging the cosy consensus. It's challenging the establishment view. And I did this over Saudi Arabia for example.

The easy thing to do would be just gone along and enjoyed an evening's bash at the Palace. But actually somebody had to say why are we cosying up to this appalling regime. Why are we letting it corrupt our business practices. You know it was unpopular with a lot of people but somebody had to do it.

And I think on a wider range of issues, what we're now seeing is the Conservatives and Labour converging on the same ground. I think the posh word is triangulation ..

ANDREW MARR: So ..

VINCE CABLE: On things like issue, on immigration, prisons, tax policy, environment. They're all saying the same thing. And we have to say something which is sharper, with a much sharper edge.

ANDREW MARR: You have to be brave enough to be different ..

VINCE CABLE: Yeah, exactly.

ANDREW MARR: .. on those kind of issues?

VINCE CABLE: ...

ANDREW MARR: Okay. One very final question. Just tell us who's going to win.

VINCE CABLE: I can't tell you that. It's very close.

ANDREW MARR: Is it?

VINCE CABLE: And I haven't backed either of them. No, I think they're both very good and I would be very happy working with either of them.

ANDREW MARR: And I'm sure they'll be very happy working with you Vince Cable. Thank you very much indeed for joining us.

INTERVIEW ENDS

Please note "The Andrew Marr Show" must be credited if any part of this transcript is used.

NB: This transcript was typed from a recording and not copied from an original script.

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